Rule-tightening speeds up exodus to consolidators

Advice firm consolidators across the UK are seeing takeover targets flock to them as smaller advisory businesses struggle to continue amid a raft of incoming regulations.

A number of large advice firms have seen surges in interest from smaller businesses over the past six months.

It comes shortly after Mifid II came into effect in January and as the General Data Protection Regulation looms on the horizon, due for implementation on 25 May.

Fred Hansson, a partner at Imas Corporate Finance, which advises on mergers and acquisitions, said there is "growing interest in exploring what a consolidator can do for an advice firm regulatory pressure is certainly part of that"

"It is also because of the value the firms are now able to realise. They are being frequently courted by consolidators and they are sensing there is currently a good market for them to consider a sale into.

"There is a large amount of capital in this market, mainly from private equity firms and successful listings on the stock exchange."

Mr Hansson said his research suggested there were around 6,000 IFA "entities" in the UK with a large proportion of those are worth less than £5m so consolidation would probably continue for the foreseeable future.

Nigel Stockton, chief executive of Ascot Lloyd, which merged with advice consolidator Bellpenny in 2017 to create a business with £6bn assets under advice, said his company had seen the number of firms express interest in being bought out double over the past six months.

He said: "Our pipeline has never been stronger. I think it is getting very complicated to run an advice firm now.

"In the past you would see businesses of less than £5m turnover but now we are seeing businesses of all sizes."

Stephen Kavanagh, chief executive of national advice firm Chase de Vere, said his company was also being contacted by an increasing number of advice firms and he cited ongoing regulatory and cost pressures as a possible reason - though he added many firms cited his company's independence as a reason.

According to figures from the Personal Investment Management & Financial Advice Association, the number of advice firms has been trending downwards since 2008.

In December 2016 there were 14,054 directly authorised and appointed representative firms compared to 14,884 in December 2008.

Though the Pimfa figures show the number of advisers per firm - currently 4.55 - has fallen since 2009 when it was 5.08, though it has been increasing gradually again since 2013.

Mark Stokes, proposition and marketing director at Succession Group, which also buys up smaller firms and moulds them into its way of working before absorbing them, said there was "no shortage" of firms currently considering their future.

He said: "We have acquired a large number of businesses over a relatively short period and are certainly experiencing ongoing interest by increasing numbers of firms.

"Mifid II and GDPR are clearly presenting significant challenges to smaller firms, particularly with respect to requirements for investment in technology and people. Also, let’s not forget that we have enjoyed very favourable economic conditions since 2008 so now is likely to be a very suitable time for many proprietors to explore new strategies."